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Modelling Investment When Relative Prices Are Trending: Theory and Evidence for the UK

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Author Info
Thompson, Jamie (Bank of England)
Hasan Bakhshi
Nick Oulton

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Abstract

This paper investigates the ability of aggregate and disaggregate equations to account for the boom in UK plant and machinery investment in the second half of the 1990s. We extend previous US research by Tevlin and Whelan (2002) by explaining the failure of the aggregate equations more formally in terms of misspecification when relative prices are trending; and by conducting the econometric analysis in a formal cointegration framework. In line with the US research, we find asset-level equations can explain the UK investment boom over this period, whereas the aggregate equation completely fails.

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File URL: http://repec.org/res2003/ThompsonJ.pdf
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Publisher Info
Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 203.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:203

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Web page: http://www.res.org.uk/society/annualconf.asp
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Related research
Keywords: investment; computers; relative prices;

Find related papers by JEL classification:
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

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This page was last updated on 2009-11-25.

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